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09-12-2010 10:57:05

Miners, banks boost FTSE on global economy hopes

Pedestrians walk through the gate at Paternoster Square, home to the London Stock Exchange, London
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By Simon Falush

LONDON (Reuters) - Miners and banks pulled the top share index higher in early trade on Thursday as proposed fiscal stimulus measures in the United States helped boost the outlook for the global economy.

By 9:09 a.m., the FTSE 100 was 24.59 points or 0.4 percent, higher at 5,819.12 after falling 0.2 percent on Wednesday.

A proposal by U.S. President Barack Obama to extend tax cuts has lifted optimism among some investors that the world's largest economy will deliver decent growth in 2011 helping boost commodity prices.

This helped lift metal and crude prices and boosted heavyweight commodity stocks.

Miners Lonmin (Lonmin PLC) and Kazakhmys (KAZ Minerals PLC ORD 20P) added 3.1 percent and 2.3 percent respectively while energy firms BG Group and Royal Dutch Shell (Royal Dutch Shell PLC 'A' Ord) gained 0.2 percent and 2.9 percent.

An absence of any more bad news on European debt problems also helped settle investors' nerves.

"The outlook is a bit more positive, Europe is off the front pages, there is talk of M&A activity and that is a sign that people are more confident on equities," said Giles Watts, head of equities at City Index.

Burberry (Burberry Group PLC) gained strongly and reached an all-time on Wednesday on renewed talk that it could be the subject of takeover activity.

Banks were also mostly firmer, boosted by the improving risk appetite. Barclays (Barclays PLC) gained 3.1 percent while Lloyds Banking Group (Lloyds Banking Group PLC ORD 1) put on 2.7 percent.

Insurers were also stronger, with Prudential (Prudential PLC ORD 5P) adding 2.8 percent and Legal & General (Legal & General Group PLC ORD) up 2.1 percent.

Asia focussed bank Standard Chartered was among the top FTSE 100 laggards, however, down 2.4 percent as the bank issued a trading update. Analysts highlighted cost growth exceeding income growth as a possible cause for investor concern.

The biggest faller was Smith & Nephew , down 3.2 percent, retreating after strong gains on Wednesday which were prompted by bid speculation.

BOE AWAITED

The Bank of England's Monetary Policy Committee decision is due at 7 a.m. The Bank is likely to hold interest rates at 0.5 percent, and keep the 200 billion pounds of asset purchases that has been in place since February this year.

Overall, appetite for equities seemed relatively firm with investors seeing them as attractive relative to other asset classes.

"Bonds outflows (four-week moving average) are negative for the first time since 2009, while equity inflows (3-month moving average) are their highest since 2006 and money market inflows

have turned positive again," Credit Suisse said in a note.

"This pattern of funds flow suggest that investors want to be cautious, but realise that bonds carry a risk and that, at the margin, some types of equities are safer than bonds."

But data continued to paint a rather grim picture for the domestic economy.

British house prices posted their first annual decline in a year in the three months to November, and prices fell 0.1 percent on the month, mortgage lender Halifax said.

(Additional reporting by Dominic Lau; Editing by Erica Billingham)

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